Break Out Money Guys

Category: Market Briefs

  • Market Recovery: SPY and VIX

    The market seems to have bounced back a bit after the drop following the Bank of Japan’s interest rate hike. We’re currently sitting around where we closed on August 2, filling that gap nicely.

    SPY resistance levels and targets

    If SPY opens up tomorrow or breaks through resistance at 533, I’ll be eyeing 539.43 as the next target, with a potential retest of the trend line around 550. This would be ideal since I wasn’t able to add full short positions during the recent dip.

    VIX trends

    I’ll be keeping a close eye on the VIX, especially after we saw a breakout over the wedge right before that big drop. Using the VIX for trades has made my trading much more accurate. It is a powerful tool that I highly recommend studying. I might do a dedicated post on it soon.

    If the VIX keeps trending down, SPY could melt up toward those target resistance levels. I’m particularly interested in a VIX retest of the wedge breakout around 17.50. If we drop back into the wedge, selling pressure will likely ease, giving us a shot at retesting the highs. On the flip side, if the VIX bottoms at that retest, that’s when I’ll start looking to add more short positions.

    Market crash?

    Nothing has changed with my thesis on a market crash. The cracks have been forming for the last couple of years, and as we’ve seen, market sentiment can shift quickly. Right now, my focus is on clearly identifying areas to enter short without getting swept up in another runaway market. That’s been a challenge for me over the past year, but I’ve learned from my mistakes. I’ll be putting together a post on risk management soon. 

  • Market Outlook: Navigating Uncertainty and Anticipating Corrections

    I’ve been mostly silent for the last couple of months as the market has been slow to react to any external factors. With a newfound sense of uncertainty, I believe now is an opportune time to discuss my thoughts on where the market is headed in the coming year.

    Market resilience

    Ever since November of last year, the market has largely shrugged off any bad news. NVDA and other chip stocks have dominated the market cap, while non-tech-related companies have participated very little in the strong momentum. To be fair, IWM has seen a recent surge and is just now approaching its 2021 highs. In contrast, SPY and QQQ are well above those levels, both approximately 15% up, even after this most recent sell-off. Moreover, SPY is about 70% higher than pre-COVID levels in just four years.

    Anticipating a major correction

    I have no doubt that a major correction is coming. I’m uncertain whether we will see a sharp decline or if it will be more drawn out over the next one to two years (or longer). My primary concern is positioning, and I would prefer another run at highs before entering full position size again.

    What I’m planning

    I got caught this year shorting NVDA, which significantly impacted my P/L. However, I have been patiently waiting for the right opportunity to try again. I believe that the time is now, and I will begin building up positions over the next few weeks.

    I am particularly interested in the SPY 450 level. However, with the current market indifference, I believe we may see much lower prices over the next year or two as the momentum shifts.

    Final thoughts

    There have been no significant retests during this entire market rally since November, so I am hoping for a different outcome during the upcoming correction. Many investors have been lulled into a false sense of security during this rally and have been conditioned to “buy the dip.” I’m not sure this strategy will pay off for them.